Investors who are reluctant in letting their developing economy allocations go may take on a more defensive approach with U.S.-dollar denominated emerging market exchange traded funds.
“We think it’s time to stick to your guns in emerging markets but adopt a more defensive approach,” Sergio Trigo Paz, head of BlackRock’s emerging markets fixed income group, said in a Financial Times article, arguing for hard currency denominated emerging market assets as a way to hedge against currency risk in developing economies. [Not Surprising: Currency Hedging Makes a Difference in Emerging Markets]
“One way to adopt a more defensive strategy is to keep about 60 per cent of your chips in hard currency assets, about 30 per cent in high-quality credit and about 10 per cent in cash,” Trigo Paz said.
Hard currency refers to money issued from a highly industrialized, and politically and economically stable economy, such as the U.S. dollar.
There are a couple of U.S. dollar-denominated emerging market bond ETFs available to investors. For instance, the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) and rival PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY) both track U.S. dollar-denominated emerging market debt. [Robust Demand Could Lift EM Bond ETFs]